Hot Companies from Cool Places

Except for 30 odd companies in mid cap space I don’t find many bargains purely from financial screeners on any side of the ocean. Could be a case of poor vision as aging taken on its toll on me or the fact that I am not in touch with markets (have not seen TV in ages) and certainly don’t know the anchors who don’t own shares but do hold the fort on investing.

India has been one of the poorest performing stock markets this side of calendar but now offers some value in small and mid cap space.

In gratifying exploration for the bargains I unearthed a few valuable rocks.

May the patients rest before finally resting in peace

I found Zero bargains in United States and feel that we are likely to have an encore of 0% S&P returns from 1999-2012 yet again for at least another five years with a few exceptions obviously (I almost have to throw exceptions in there, don’t I want to be right when predicting !) . Almost everything is super expensive for those that are not yet in billion dollar club.

Found an interesting company which is a market leader in hospital mattresses, ticks the value investor boxes, capital preservation and some nonsense jargon like that…at a palatable 10 PE multiple.

Father Lynch gave us flowers in the desert (Symphony Ltd) and corpses in the garden. On that note I discovered a market leader with cutting edge bacterial decomposition occurring naturally under the ground with latest strains of bacteria acting on dead bodies. If it sounds eerie, it is.

This market leader with over 50% market share in cemetery in prime cities has outperformed most Australian stocks. But Ozzies having fat wallets and raked in bundles by selling mountains of dirt and dust to the world don’t leave things cheap on stock market for sure deals such as this stunner.

Unfortunately this steady business will come dear at 26 times earnings.

Provides funeral, cemetery and crematoria services in Australia. Count on this before you count on Daburs, Colgates, and ITCs, okay ITC is a friend, it helps grow this business.

Wondrous Wealth in a Remote Island

I like un-earthing stocks that are not on the published map in India. This prompted me to further research into geographies that are not in radar of Fund Managers. That would mean non-radar stock squared, works better than cocaine for me, prompts me to pray for extra long life just to be able to compound the wealth.

The best company I have found in a while is a billion plus dollar entity that contributes to 10% of Papua New Guinea’s (PNG) GDP. In these island economies, the best part is, a number of large companies end up taking the mantle of a natural monopoly.

When Warren Buffett spoke about Island A and Island B and likened America to Island B; and that Island A inhabitants who enjoy trade surplus would gradually take over assets of latter, we want to buy stocks in Island A. It is not without reason that Buffett burnt jet fuel, time and effort in combing through Germany.

Investor is in for a two fold treat if a right stock is selected, investment performs well and foreign currency will outperform local currency over time. Unfortunately Germany does not have the luxury of Deutschemark (sorry Hitler) and PIGS are pulling it down. But there is not such problem with other countries without currency union where trade surplus does not get shared with slackers.

Going to the past

Wouldn’t it be great buying into IT revolution knowing who the winners would be, or supermarket chains knowing they over take the rest or McDonalds in 70s or Infosys in 1990s. Going to past may not be possible for most of us without superhuman ability, but we can go to the places on this planet which look like the past. PNG gained independence in 1975 from Australia (great, 30 years even behind India !). With only 15% urban and 85% ruraland a mind numbing trade surplus of 1.5 Billion – 3 Billion $ on GDP of 12 Billion $ makes it better than even Germany in relative terms.I suggest you go through the annual report of TATA SONS of PNG (Steamships Trading Company Ltd), the biggest conglomerate of PNG and is likely to have more companies in few years and projects than we can count. It owns 50% of hotels in PNG, 50% of Colgate-Palmolive, 50%+ shipping business in PNG, Supermarkets, Warehouses, 20% IT business in PNG+ lots more, all for about 1 Billion Australian Dollars. Makes me feel like we have a better bargain than buying into Buffett Partnership in 1960s.While the stock was available for 2$ few years back and 26$ last year, at this price of 31$, I still consider it a bargain. When you are done investigating the company, you’ll realize that it is owned by a 200 years old respectable ancient business group which owns numerous businesses like Cathay Pacific, Coca Cola bottling in the US etc.

If you like HDFC Bank in India then chances are that you would swoon over BSP Bank in PNG that has 52% market share, awesome management, great dividend all at 10 PE. Figuring out how to buy this stock. Check the quality of Annual Report and transparency, needless to say monopoly !

Top line is stagnant because their sales of CACO3 and Sorbitol is somewhat flat. Paper should be a dying industry in the long run – not sure how much of the CACO3 is sold to paper industry. Sorbitol – small projected growth.

I think this is a market inefficiency play. Probably not a keep till you die play. Available for 50 crores and they have an owners earning of about +/- 20C after their maintenance capex. If their expansions start revenue generation (Mannitol, DMH and Alcohol), very little reason why it won't be ~4 P/E. That should give a 2X return even if it plays out in 2 years.

PS: I am huge fan of Amit, but writing here for the first time. Just sharing my view. Feel free to point out if something is not right. Disclaimer: I don't hold this stock.

I am not so sure and have not researched on Bilcare or other Pharma companies. Hospitals and larger Pharma companies have tremendous power over receivables from firms like these. Opto Circuits is suffering from this and has better prospects of survival.

I am invested in only market leaders even if that means leadership in one state of India or one category/niche like Atul Auto or Thangamayil, these will more than survive.

Right now if you just buy 50 companies from a blanket screener with criteria of PE < 10, ROE > 20, Div Yield > 3%, Revenue and EPS cagr for past 5 years > 20%, market cap < 600 Crores and buy all of them, you will outperform sensex and all global indices.
A few of them will fail but rest will more than make up. But if you are buying only 10 companies then each one must survive, and for that long and arduous imagination has to be applied.

After quite some time, in an otherwise bearish market Photoquip was cracking ! Total volumes traded 36,500 and counter closed at Rs.46 up nearly 17% from yesterday's closing !!!! Looks like to be year-end adjustment of promoters !!!It seems shares held by proxies have been transferred to promoters' account !!

There is potential and value in the company, dividends and rumours aside. Hawkins was flat at 40-70 Rs for over 7 years, TTK and Relaxo too below 100 Rs for a decade. All three were positions of Jhuhjhuwala too but he could not make any money from above three. Same with Symphony.

One can hold a stock only so many years before selling out. But if you buy a large number of stock that are ridiculously cheap even statistically, some of them will surprise on the UPSIDE, that Surprise element is NOT captured in the price already.

Nearly 1.5 lac shares of Photoquip traded today ! But what an irony more than 1.45 lac shares were through bulk/block deals !!! Hardly 3,000 shares were traded in retail !!!! I hope today`s trading completes the permissible limit of 5% creeping acquisition for promoters for Financial Year 2012-13 !!!!!!

Amit, can you provide your opinion about laopala,can I buy this or not,and I have photoquip1000share from 2005 @15,can I add more or not,last about cravatex I sold it 680level can some quantity add?I need your opinion.thanks.

One may form an opinion that Photoquip will go up based on the value parameters or any other parameters and eventually be correct in that opinion but will lose money if he acts too soon. We all know that untill the promoters acquire all the stocks they intend to acquire the stock is not going to inch up in a meaning full way. Also there is no guarantee that the promoters will let the retail investors make money( they can de-list at a lower rate). By acting too soon one is losing other opportunities and also a possible opportunity in Photoquip aswell.

But we must admit that promoters have been very smart and they saw to it that they were able to keep the price in the range of 40 for quite a longer period !!! My worry on this counter is a little different ! Suppose even after acquisition and performance share price refuses to budge !!!! Promoters' conduct on corporate governance is far from satisfactory !!! They have not declared dividend since inception whereas they have been taking handsome salary packages for father and two sons !!! In fact, it is exorbitantly high keeping in view the size of the company and it's operations !!! There is no guarantee that they will come on the dividend list even after everything is done as per their wish-list !!!! I can quote you so many companies whereas handsome profits are being recorded year after year and companies are refusing to reward the shareholders.In fact, minority shareholders are being treated like a step child. Our present Corporate laws provide hardly any remedy arising out of such a situation. Ultimately, retail shareholders are left with no option except to accept any “sell out” coming from the promoters or even no reflection of performance on the share prices. With the result share prices are quoting at laughable prices. For example just check up “Samtex Fashions” !!!!!

I have recently come across your blog and have become a regular reader of all your posts.I would like to bring to your attention a company called Fluidomat which has a mcap of 22 crore into the fluid couplings industry. The promoters have gradually increased their stake in the company which suggests good prospects ahead. Can you please advise if this is a good company to invest in?

Books Read

Goodreads

Search this blog

Follow Blog via Email

Enter your email address to follow this blog and receive notifications of new posts by email.

Past Blog Posts

Past Blog Posts

Amit Arora

B.Com(Hons) Gold Medalist - Delhi University, MBA.

Served United Nations between 2001-2006 in Europe.

Since 2007 consultant for Inland Revenue, Ministry of Economic Development, Ministry of Social Development, Ministry of Justice, Ministry of Business Innovation and Employment (NZ Govt. Organisations).